Loss to Lease

Loss to lease is the difference between a property's current in-place rents and the prevailing market rents, representing unrealized income potential when existing leases are below market rates. For example, if market rent is $25/SF but a tenant's lease locks them in at $20/SF, the loss to lease is $5/SF per year. On a 10,000 SF space, that's $50,000 in annual income the property isn't capturing. Loss to lease is a key metric for value-add investors because it signals upside potential - as leases roll to market rates, NOI increases without any capital improvements. For NNN investors, loss to lease creates a natural rent growth trajectory that can drive significant value creation at disposition. Properties with high loss to lease are often priced at lower cap rates because sophisticated buyers underwrite to the higher stabilized income.